Cushman & Wakefield recently launched the Asia Pacific Office Outlook Report 2024, a comprehensive regional report that provides supply, demand, vacancy, and rent data forecasts for cities in Australia, China, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
The Vietnam market is reported to welcome an influx of new office supply in 2024. For Hanoi, the CBD area will welcome a total of 80,700 sqm of new supply, mainly located in Secondary districts surrounding the CBD area. Beyond this, another approx. 100,000 sqm of new Grade A office space is forecast to come online for the 2024–2027 period.
For HCMC, new Grade A supply is expected in the CBD area (District 1) in 2024–2025 with the launch of 3 projects, contributing a total of 118,700 sqm of premium office space to the market. About 81,000 sqm of additional Grade A supply is also expected from the non-CBD area during the 2024–2026 period.
Economic instability has affected general office demand in Ho Chi Minh City as tenants become more and more concerned about costs. The absorption rate will gradually increase from 2024, thanks to new, higher quality supply and improved economic conditions. Office vacancy rates are expected to be above 20% throughout 2023–2026, driven by continued new supply, according to Cushman & Wakefield.
Ngoc Le, Head of Commercial Leasing at Cushman & Wakefield Vietnam said:
”New supply influx from Thu Thiem New Urban Area (neighboring the CBD) marked a significant step for this submarket to be a true extension of the current CBD area. District 7 and Thu Thiem New Urban Area will rise as new business and commercial hubs of the city thanks to the immediate proximity to the current CBD area with competitive rents, newer projects with advanced technology, abundant land bank for new developments, and improving infrastructure.”
In Hanoi, market demand was strong in the first half of 2023, however, demand slowed down in the second half of 2023 and is expected to remain low throughout 2024. Vacancy rate is expected to be at level of 25–30% in 2023–2024 and then gradually decrease to about 20.5% in 2027. With abundant new supply throughout Hanoi, the market is expected to be favorable for tenants in the near future. On average, Hanoi's total supply will grow by 3.5% per year in the period 2023-2027.
Observing many new office developments, we recorded a heavy focus on sustainability and green practices is becoming clearer, mirroring a trend that has been happening in other markets globally, especially Europe and the US.
Ngoc comments on the trend: “According to our observation, most projects on the Vietnamese market, new and operating, are either pursuing or have attained ESG certifications, highlighting the shift in interest toward more sustainable development in recent times. In HCMC and Hanoi, a total of 21 buildings are awarded LEED/BCA Green Mark certificates, the two leading globally recognized building quality standards. This means there are hundreds of buildings under pressure to retrofit to remain competitive in the market, especially if they want to attract global occupiers.“
Trang Bui, Country Head of Cushman & Wakefield Vietnam added her insights:
“Global businesses are making Net Zero commitments, and sustainable real estate will be a critical factor to meeting their goals. Take a technology services company, bank or insurance company for example – up to 80 or 90% of their carbon emissions can come from real estate. This is part of the reason why we are seeing tenants’ priorities gradually shifting from a focus on location, rental price, and amenities to what a building could offer in terms of helping to reach their sustainability goal.”
Movements in the regional market
Despite improvements in demand, approximately half of the 25 markets forecast will see vacancy rates increase between 2023 and 2027. The largest vacancy rate increases are forecast for Guangzhou (to almost 30% by 2027 from 20% in 2023) and Shenzhen (to almost 35% by 2027 from 27% in 2023). Hyderabad, Kuala Lumpur and Bangkok are also forecast to exceed vacancy rates of 25% by 2027. Singapore and Seoul are both expected to retain vacancy rates below 5% while Tokyo and Manila are forecast below 7% through 2027. Key Australian markets are likely to remain stable at around 10%.
In Mainland China’s, the four key office cities—Beijing, Shanghai, Guangzhou and Shenzhen—were also expected to continue a gentle recovery, with demand of 18 msf forecast for 2024, up from the 13 msf expected by this year-end.
Hyderabad and Bengaluru in India, and Shanghai and Shenzhen in China are all expecting more than 55 msf of new supply by 2027 – additions of between 32% and 66% of their existing stock, with Hyderabad expecting a record 15.6 million square feet (msf) in 2024. Shenzhen, Hyderabad and Ho Chi Minh City in Vietnam each expect to welcome more than fifty percent of their existing office stock in 2024.
For Brisbane, Jakarta, Seoul and Singapore supply pipelines through to 2027 total less than 10% of their existing stock. At a sub-regional level, Australian markets led rental growth in 2023 and are expected to continue showing the strongest growth through 2027, averaging between 4% and 7% per annum. Singapore can also expect growth of around 4% from 2025, driven by strong demand and limited supply; rental growth elsewhere in the region will remain more muted.
Dr Dominic Brown, Head of International Research, Cushman & Wakefield said there was reason for ‘cautious optimism’ in the office market despite the global economic uncertainty that was likely to continue into 2024.
“There remain opportunities for both occupiers and investors who understand the nuances of local sub-markets. The ongoing flight to quality by tenants looking to improve their ESG and wellness offerings to employees will continue to encourage supply-led demand across the region while investors who understand true, rather than headline vacancy rates, and who seek out either high-quality assets, or assets with repositioning potential in good areas, will reap the benefits.”
Economic context
Dr Brown added: “Inflation, while improved, remains elevated in most economies across Asia Pacific. Trade has slowed as businesses and households alike have reined in expenditure in response to interest rate increases.
“On the positive side, growth of between 3.5 and 4.0 percent is forecast for Asia Pacific in 2024, which, while slower than the 4.5 percent forecast for this year, is stronger than both the eurozone, where growth of 0.9 percent is forecast next year, and the US, which is expecting -0.3 percent.”
Within Asia Pacific, growth forecasts are varied. Emerging markets Vietnam, the Philippines, India and Malaysia are likely to benefit from strong domestic consumption and increasing foreign direct investment, while a potential rebound in tourism, which remains 25 percent below pre-pandemic levels in Asia Pacific, could support growth in Thailand in 2024.
Among the more mature economies, Singapore and South Korea are expected to see the beginning of a rebound as trade starts to recover; Australia and Japan are likely to trail the region’s growth expectations. China’s outlook, impacted by weaker export demand and soft domestic consumption, remains mixed.
